Playdom acquires yet another social games developer. This time, it’s Hive 7, for an undisclosed according to TechCrunch. Hive 7 is best known as the developer of Knighthood, a combat diplomacy game. They have also developed Youtopia, Kick-Off, and Sindicate.
Playdom is competing with Zynga to be the top social games company and part of their strategy seems to be to buy their way to the top.
Acquiring game studios to grow is a good strategy when your valuation is high as Playdom’s is now and is also a good way to hire talent.
However, it is also a strategy fraught with risk. Buying a company is with stock options is easy; the big challenge is to successfully integrate the new acquisitions in a way that does not cause chaos. The more companies Playdom buys, the greater the risk it will be to integrate them successfully.
Moreover, I am starting to wonder what value Playdom is actually getting through all these acquisitions. When you look at Playdom’s numbers, only one game as a result of recent acquisition, Bola by Three Melons, is a growing part of the company’s bottom line. Playdom’s growth appears to be based solely on games that were developed internally, such as Social City.
A lot of the companies Playdom had big success in the past on Facebook but are not growing now. They are probably buying these companies at a relatively cheap valuation and these companies are deciding its better to join forces with Playdom than continue to go it alone in an uncertain time for games on Facebook.
This does not mean that such acquisitions are bad. They are putting together an amazing team of game developers that once in the Playdom environment, will be able to leverage Playdom’s huge user base to create social games that grow despite Facebook’s changes. And, we have no guidance on what games these acquired companies have been working on that have not launched. For all we know, these companies could be working on the next FarmVille-like success and Playdom is buying them before they get big.
It’s a gamble though. Sometimes 1+1 = 3. And sometimes, it equals less than zero.